[Chapter 53: Distribution]
Daniel and Linton arrived at the office of Levitt Gore, the head of distribution at Universal Pictures.
"Daniel, our superstar Linton, what brings you two here today?" Levitt greeted them with a smile, while instructing his secretary to pour some coffee.
"Levitt, we're here to ask for your help," Daniel said, taking the coffee from the secretary.
"Your record label has been thriving lately, profits soaring -- you're the jewel of the company. What can I do for you?"
"Here's the thing, Linton is planning to invest in producing a movie himself."
"What kind of movie? Do you have a script?"
"It's a youth musical," Linton said, handing over the script for Step Up.
Levitt carefully read through it. "The script is solid and complete, but musicals aren't very popular in the market these days."
"This is a teenage musical idol movie, about chasing dreams and inspiring youth. The target audience is teenagers. As long as the lead actors are good looking and the songs catchy with captivating dance, it will definitely draw the youth to theaters," Linton explained.
"Have you calculated the investment?"
"The production has no big scenes or special effects, so it should be under $10 million."
"About right. Are you looking for Universal's investment?" Levitt estimated silently.
"Can Universal invest?" Linton asked tentatively.
"That's almost impossible. Musicals haven't done well at the box office recently, and audiences are tired of them. This genre rarely passes the company's audit committee."
"So if I invest myself, will Universal distribute it?"
"If you invest yourself, do you have a concrete project plan?"
Linton presented the project plan to Levitt.
"The plan is well done and professional. The producer you hired is Robert Lewis? He's good, very capable, and has worked with Universal before."
"He also graduated from USC's Film and Television School. We're alumni."
"But directing yourself is risky, and you want to star in it too."
"I studied directing at school, and my graduate short film got an A+. Also, I directed some music videos in my first album. Directing a youth musical is no problem," Linton boasted.
"But you've never worked on any film or TV projects before, not even as an assistant director?" Levitt asked pointedly.
"Everyone has a first time, right?"
"But who would invest millions on your first film?"
"That's why I'm investing fully myself. I have confidence."
"I see. Honestly, since Universal was acquired by Japan's Panasonic, the company's film performance has declined. Last year, we only outperformed Columbia among the top seven studios. This year's investment committee is even more cautious, so there are fewer in-house projects. Our distribution department can handle more external films, but your movie's box office outlook isn't great, so we won't offer favorable distribution terms."
"What are the usual terms for distributing external films?"
"Two models. The first includes all distribution costs. We take 30% of North American box office revenue, 40% from overseas, 40% of total VHS and TV rights revenue, and 50% of merchandise revenue.
The second model takes 20% of all revenue, and distribution, marketing, duplication, management, transportation, and insurance costs are calculated separately.
You can choose whichever suits you better."
'It's really... dark! The production company bears all investment risks, but the distributor takes most of the profit. Yet, you still have to beg for distribution because they monopolize the channels,' Linton thought to himself.
"We'll pick the first model, but 30% for North America seems steep. I heard some movies only pay 20% in distribution fees."
Linton dared not choose the second model. It looked better on paper, but Hollywood accounting rules could be twisted. The distributor might send a sky-high distribution cost bill so the producer never turns a profit -- or even suffers a loss -- while the distributor pockets a fortune.
"That only happens when the film is exceptional, highly praised at festivals, or expected to be a blockbuster. Then distributors offer better terms to compete. Such films come once a year in all of Hollywood. Yours hasn't been made yet, so no one can predict quality or box office. You can't expect that kind of deal now."
"Levitt, I'm part of Universal too. I brought big profits last year and will again this year. Can you offer favorable terms?" Linton subtly used Soul Induction on Levitt.
"Yeah, Linton is Universal's top money-making star. You can't treat him like outsiders. Give him your best deal," Daniel chimed in.
Levitt spaced out for a moment and accidentally revealed his real limits.
"For the first model, my maximum authorization is 25% of North American box office, 30% international box office, 20% VHS and TV rights, and 50% merchandise."
"But you said distribution fees could be as low as 20% in North America?"
"That's my maximum authority. Anything lower needs board approval. Frankly, given your film's prospects, the board wouldn't approve better terms."
"Can I sign distribution for North America only?"
"Universal distributes worldwide. Aren't you planning overseas release?" Levitt asked.
"I want to release in North America first to see the box office, then decide on overseas strategy."
"Fine, but that delays overseas release, which hurts international box office due to piracy and weak IP protection in many countries."
"Okay, overseas too," Linton reasoned. "Promotion is key for a good box office. How much will you put into marketing?"
"Given your film's scale and genre, we'll invest up to $2 million for North American promotion first. If the box office exceeds expectations, we'll increase the budget, since higher box office means more revenue for us too. Overseas promotion depends on North American performance."
"What defines exceeding expectations?"
"$8 million opening weekend. Beyond that, we'll boost promotion."
"How many theaters will you open in the first week?"
"Depends on release date. Different times have different theater availability."
"Our movie targets teenagers and must release in the summer for good box office. We plan August."
"August is tight for production. Can you finish in time?"
"No problem. We don't have any big scenes or effects."
"August is late summer, a hot period with fierce competition. We can secure between 1,500 and 2,000 theaters if the film quality is good."
Linton thought it over. The terms seemed acceptable.
"Thanks, Levitt. I understand everything. I'll discuss this with my producer."
"Of course. Contact me anytime."
...
After Linton and Daniel left, Levitt slapped his forehead, regretting he revealed his bottom line so easily.
He blamed Daniel. He needed Daniel to provide more promotion resources for their music company the next time they released singles or albums.
...
That was also why Linton brought Daniel along to meet Levitt. Otherwise, a single Soul Induction from Linton might have gotten the best terms outright.
But such contracts need many procedures, and irregularities can be easily spotted.
With Daniel involved, favorable terms could be attributed to Daniel's influence without crossing company limits.
Since being bought by the Japanese, Universal's management had been undermining the company for personal gain, leading to performance decline.
Last year, Universal Records profited greatly thanks to Linton, boosting its position within Universal Pictures.
Yet, many executives like Daniel also engaged in self-serving behaviors, some colluding.
Daniel's choice for the new female singer was likely not from Universal but his own secretly controlled music production company, which operated under Universal Records and benefited from their distribution.
Universal was still relatively stable, even if profits were down. Sony Columbia was worse off.
After Japan's Sony bought Columbia, they struggled under Columbia's co-chairmen, Guber and Peters, who drained the company's resources.
Sony paid two hundred million dollars to buy their personal companies and faced a a-billion-dollar lawsuit verdict from Warner Bros., causing Columbia Pictures to hemorrhage losses.
Fortunately, Sony Columbia Records found a principled president, Tommy Mottola, and had money-makers like Michael Jackson and rising star Mariah Carey.
Last year, Sony Columbia Records made over $200 million in profit, helping Sony avoid a financial black hole caused by Columbia Pictures' losses.
*****
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